VirnetX Loses Patent Lawsuit Against Cisco; Shares Plunge 28%

Shares of VirnetX Holding Corp., a patent-licensing firm, fell the most since August 2011 after the company lost an infringement trial against Cisco Systems Inc. over virtual private network inventions.

VirnetX dropped $9.92, or 28 percent, to $25.75 in New York trading of 9.8 million, more than 12 times the three-month daily average. A jury in Tyler, Texas, Thursday said the VirnetX patents weren’t infringed by Cisco, rejecting a demand for $258 million in damages.

The dispute is over virtual private networks, through which a website owner can securely interact with a customer or an employee can work at home and have protected access to a company’s electronic files. Doug Cawley of McKool Smith, a lawyer representing VirnetX, had told the jury Cisco used the technology to improve security in its own networks.

“We are grateful that a jury in Tyler, Texas, agreed with Cisco that our accused products do not use VirnetX’s technology,” Cisco General Counsel Mark Chandler said in a statement. “Cisco will continue to do the right thing for our customers and shareholders by vigorously defending against patent infringement lawsuits that lack merit.”

Patent Review

The patents are under review by the U.S. Patent and Trademark Office, and Cisco lost an argument in which it sought to tell jurors about preliminary rejections by the agency. By law, patents remain valid and enforceable until the review process, including all appeals, is completed.

VirnetX won a $368.2 million verdict against Apple Inc. in November over the same technology, including two of the same patents, before a different Tyler jury. In 2010, Zephyr Cove, Nevada-based VirnetX reached a $200 million settlement with Microsoft Corp. over the same inventions.

Lawyers for the two sides declined to comment on the verdict. Greg Wood, a spokesman for VirnetX, didn’t immediately return messages seeking comment.

Cisco Sales

The case decided Thursday focused on Cisco routers, software and phones that have virtual-private-networking functions including its Unified Communications Manager, Telepresence or AnyConnect. Cisco, whose products handle traffic over the Internet, reported sales of $12.1 billion in the quarter ended Jan. 26.

VirnetX, which said in its annual report that it has an accumulated deficit of $62.9 million, relies on patent licensing for its revenue. It is testing its Gabriel Connection Technology to create secure communications links, it said in the annual report.

U.S. District Judge Leonard Davis, who is presiding over the Apple and Cisco cases, on Feb. 26 upheld the jury verdict against Apple. Davis denied a VirnetX request for an order to limit Apple’s ability to provide virtual private networks on its products.

The verdict came hours after Cisco’s general counsel, Chandler, testified before the House Judiciary Committee on patent litigation. In his prepared statement, Chandler said the company spends about $50 million a year fighting 50 lawsuits filed by patent owners that don’t make products.

The case is VirnetX Inc. v. Cisco Systems Inc., 10cv417, U.S. District Court for the Eastern District of Texas (Tyler).

Shares of VirnetX Holding Corp., a patent-licensing firm, fell the most since August 2011 after the company lost an infringement trial against Cisco Systems Inc. over virtual private network inventions.